The Man with a Lifelong Search for Value ; One of Britain's Best Fund Managers Explains Some of the Secrets of His Success to WILLIAM KAY. but There Are No Big Surprises, Because the Reason He Attracts So Many Clients Is Painstaking Research, with Real, Bottom-Line Valuation

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Not for the first time in his career, much is resting on the broad shoulders of Neil Pegrum, who runs the UK Dynamic and UK Discretionary funds for Insight Investment, the fund management operation set up in July by HBOS from the embers of Clerical Medical and Equitable Life and, with the addition of Rothschild Asset Management, now handling pounds 68bn of investors' money.

From this dual base, Insight has set about recreating its business, wading ruthlessly into the market to poach leading fund managers. Among its most prized catches was Mr Pegrum, who had been running M&G's revered British Opportunities fund for 14 years.

Such is Mr Pegrum's reputation among the financial adviser community that when they learned he was moving to Insight last September many of them promptly told their clients to ditch British Opportunities. Indeed, the whole of M&G reportedly fell off the recommended lists of most brokers, a blow the firm is only now beginning to repair.

But the responsibility of carrying thousands of investors' hopes in his back pocket sits lightly with Mr Pegrum. "I've always enjoyed the excitement of the stock market, with the challenge and interest of analysing companies and industries," he said offhandedly when we met at Insight's glassy offices in the heart of the City.

His Dynamic and Discretionary funds are very much continuing the tradition of his work at British Opportunities. He had transformed that fund from one concentrating on manufacturing companies to an out-and-out special situations investor. And so it is with Mr Pegrum's new babies.

"There is no absolutely set approach, every stock is different and ideas- generation comes from a wide variety of means," he says. "I have seen a lot of stock market cycles, and a lot of companies go in and out of favour, so I have a wide knowledge base of a lot of companies, particularly at the small and mid-cap end. And they've always been very widely spread across the market, by sector and by market cap, right the way through my investment career."

There are three key steps in Mr Pegrum's method for picking stocks: how good is a company, what is going to make it more interesting and is it worth more than the market's current valuation? "Mine is definitely a bottom-up approach," he says. "I've got a view of the world, which colours what I think will be the general economic or stock market influences on a company, and that will lead you to a more or less defensive approach to your portfolio. But, broadly speaking, my whole approach is to find cheap stocks."

Good companies, in Mr Pegrum's book, can be low-quality as long as they are doing well within their industry and protected by what he calls "sustainable barriers to entry". These can be strong brand names, reputation, long- term contracts with suppliers or customers, anything which makes it tough for new competitors to establish a toehold.

"You've got to understand the industry in which you are investing," says Mr Pegrum says. "Industries are much more fluent than they have been. You've got to be very careful to understand what has driven and will drive the industry. You've got to understand the margin structure and what drives the pricing power.

"Increasingly, fewer and fewer companies have pricing power. …